February 4, 2009

The debate over the GET surcharge

Filed under: Hawaii State Politics,Honolulu Politics — Doug @ 7:36 pm

Mayor Hannemann and State leaders are engaged in a struggle about a possible change that would see the State receive the proceeds of the 0.5% Honolulu County GET surcharge. David Shapiro has an interesting column and a blog posting on the topic.

The transit tax was levied by the City Council, not the Legislature, and the money belongs to the city.

Can the state legally transfer a city tax raised for a dedicated purpose to the state general fund for another purpose? The state Supreme Court struck down the Legislature’s transfer of insurance assessments to the general fund.

Legally? I’d say “yes.” This would be quite a different matter from the insurance and E-911 moneys being moved to the general fund. For starters, the GET (including the surcharge) is already state money and sits in the general fund until the surcharge is disbursed quarterly to the County. It is only after the State hands over (some) of the surcharge that the “dedicated purpose” is specified, and the law only says that the County has to use the surcharge funds for a specified purpose. So, it would appear to (non-lawyer) me that if the County didn’t receive any of the surcharge, that point would be moot. Furthermore, the equal protection claims described in the recent HSC ruling don’t appear applicable to a GET surcharge levied across the entire Honolulu County economy.

The bigger issue is fairness. If a tax paid by O’ahu residents only is siphoned by the state, Oahuans would effectively be taxed at a rate of 4.5 percent for the same state services that residents of other counties get for a tax rate of 4 percent.

Talk about inviting a tax-discrimination lawsuit by unhappy O’ahu taxpayers — not to mention a political backlash against O’ahu lawmakers who let their constituents bear a disproportionate burden in balancing the state budget.

On the other hand, neighbor island voters (and legislators) would quietly smile. The question then becomes one of if there would be enough neighbor island legislators and (revenue-desperate) Oahu legislators to make a majority. Remember, many districts of Oahu did not vote for the transit question on the November ballot, so the “political backlash” calculus is not as straightforward as Shapiro may think. When it comes right down to it, the Oahu taxpayers would not see any overt immediate difference; the GET on Oahu would not change, and the non-existent rail system would remain non-existent.

The comments at the column and blog post are also worth a look, which is where readers and Shapiro speculate that a “temporary” GET increase will be applied statewide. All legislators would need is a bill with a usable title… Oh, wait, that’s a bill sponsored by a few House Republicans and dissident Democrats? Even better. Heh.

Were the State to “withhold” the Honolulu GET surcharge instead of a enacting statewide GET increase, then I would not be entirely surprised if the the Honolulu Council were to threaten to repeal its surcharge in retaliation. That would seriously raise the ante in this spat, though, and (since the Council would need approval from the Lege to ever re-instate a GET surcharge) I don’t think the County would be so bold.

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